Posted on 14 May 2021
ABSTRACT
China’s ferrous futures contracts, including those of iron ore and steel, fell from their record highs on Thursday, amid the rapid reversal of market sentiment from bullish to bearish in response to signals from Beijing that the government is displeased with the surge in commodities prices.
Among all falls on May 13, iron ore futures slumped the most, with the most-traded iron ore futures contract for September delivery on the Dalian Commodity Exchange (DCE) diving by Yuan 98.5/dmt ($15.3/dmt) or 7.5% from Wednesday’s settlement price, closing the daytime trading session at Yuan 1,216.5/dmt, according to DCE data.
On the same day, the most-traded October hot-rolled coil contract on the Shanghai Futures Exchange fell to Yuan 6,438/tonne when the daytime trading session ended on May 13, being Yuan 167/t lower than the settlement price on Wednesday. The SHFE’s most-traded October rebar futures contract also dropped by Yuan 178/t from the settlement price on May 12 to Yuan 5,915/t at the close of Thursday, according to the exchange’s data.
All of these contracts had hit their daily limits on May 10 and continued to climb over the subsequent two days, Mysteel Global noted.
“Such significant declines in the iron ore and steel futures markets were largely due to the growing concerns about inflation,” commented a Chinese market observer. “They were also a response to central government moves to try to control the surge in commodities prices,” she said.
On Wednesday, a cabinet meeting chaired by Premier Li Keqiang concluded that the government must effectively respond to the rapid rise in commodities prices and their knock-on effects. The State Council also said the nation should enhance monetary and other policies to ensure economic stability.
In fact, the central government had already warned about the rapid surge in commodities prices several times since April. This week on May 10, in reaction to the skyrocketing prices of ferrous commodity futures during daytime trading hours, both SHFE and DCE raised the related steel and iron ore contracts’ price limits, margin calls and service charges, as reported.
A Fujian-based iron ore analyst with a futures company in Southeast China also mentioned that overheated markets do carry the risk of downward adjustment, especially futures markets where more speculators participate.
“So now it might be the time to see some correction,” he remarked. “After all, this spate of price rises has allowed many long-position speculators or hedge funds to earn a lot of profit, so selling on profit-taking is a good choice for them – now that the State Council’s comments seem to have cooled the bullish market.”
Nevertheless, he still doubted that any drastic correction in steel and iron ore prices was likely in the near future. “If you study the steel and iron ore demand and supply fundamentals, especially in the spot market, there have been no major changes as of now,” he said.
Source:Mysteel Global
